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Brighthouse Financial (BHF)

BHF Q3 2024: Q4 Reinsurance Deal to Improve Capital Efficiency

Reported on Nov 8, 2024 (After Market Close)
Pre-Earnings Price$50.51Last close (Nov 8, 2024)
Post-Earnings Price$50.51Last close (Nov 8, 2024)
Price Change
$0.00(0.00%)

What went well

  • Pending reinsurance agreements and additional flow reinsurance opportunities: Executives highlighted multiple in-force reinsurance negotiations, including a specific agreement expected to close in the fourth quarter, which could improve capital efficiency and lower risk-based capital requirements.
  • Strong new business momentum supported by robust sales: Management emphasized that there are no plans to slow down sales—citing a very good October performance—and noted that their capital strategy, including a new hedging program for Shield products, positions them well for continued strong sales.
  • Potential for investment portfolio optimization: When asked about optimizing the investment portfolio, management confirmed that exploring such opportunities is on the table, which could further enhance overall financial performance.

What went wrong

  • Normalized statutory loss impact: The company reported a $300 million normalized statutory loss in Q3 driven in part by continuing new business strain, suggesting a potential for further negative earnings pressure.
  • Adverse interest rate environment: The quarter saw a modest loss attributed to a significant change in the interest rate environment, highlighting ongoing vulnerability to market volatility.
  • Uncertainty in legacy hedging strategy: The development of a separate hedging strategy for the legacy block remains incomplete and may expose the company to further risks and capital pressures in the future.

Q&A Summary

  1. RBC Stability
    Q: Has RBC ratio peaked?
    A: Management noted they don’t provide precise forecasts, but with $1.3B in liquid assets and a pending reinsurance deal, they expect the RBC ratio to be near the lower end of their 400%-450% target range, with improved strain management (see ).

  2. Risk Management
    Q: Added risk management expertise?
    A: They have boosted risk management by hiring additional hedging and finance professionals over the past six months to better address new business strain (see ).

  3. In-Force Impact
    Q: Why drag on RBC from legacy?
    A: Legacy in-force contracts are still weighing on the RBC due to the complexity of combined hedging; efforts to simplify these are underway (see ).

  4. Legacy Hedging
    Q: Future hedging for legacy block?
    A: They are developing a separate hedging strategy for the closed legacy block, with work expected to continue into 2025 (see ).

  5. Reinsurance Deals
    Q: More reinsurance opportunities?
    A: The team is evaluating various in-force and flow reinsurance opportunities, with one significant deal expected to close in Q4 (see ).

  6. Tactical Rates
    Q: Any tactical rate moves?
    A: They are not engaging in tactical rate positioning; the modest losses were due to a steepening yield curve affecting short-term rates (see ).

  7. Investment Optimization
    Q: Optimize investment portfolio?
    A: While potential exists for optimizing their investment portfolio, including possibly an IMA, no concrete plans have been announced (see ).

  8. Buyouts/Annuitization
    Q: Consider buyouts or annuitizations?
    A: They have historically avoided buyouts due to distributor concerns and disruption, choosing instead to focus on core strategies (see ).

  9. Market Scope
    Q: Is TAM entire closed block?
    A: They view the total addressable market broadly and are considering all possibilities, though prioritization details are yet to be finalized (see ).

  10. Norm Stat Earnings
    Q: Long-term norm stat trends?
    A: They expect a gradual improvement in statutory free cash flow as the legacy block runs off, with detailed projections to be provided next year (see ).

  11. Product Structure
    Q: Any product changes?
    A: There are no fundamental changes to the product offering; only the hedging strategies are being updated to reflect current needs (see ).

  12. Reinsurance Details
    Q: Onshore vs offshore deal?
    A: They declined to elaborate on whether the reinsurance will be onshore or offshore, only affirming confidence in closing the deal in Q4 (see ).

  13. Shield Sales
    Q: Will Shield sales slow down?
    A: Management expects Shield sales to continue strongly, driven by robust new business and improved hedging processes (see ).

  14. Free Cash Flow
    Q: Free cash flow timing?
    A: Statutory free cash flow projections will be delayed until the new hedging strategy is fully established (see ).

  15. Runoff Earnings
    Q: Runoff segment earnings steady?
    A: Although the runoff segment experienced some volatility, margins were in line with expectations, offset by solid performance in the life segment (see ).

  16. Reinsurer Switch
    Q: Impact of reinsurer switch?
    A: Switching reinsurers in June helped bolster fixed annuity sales, resulting in a noticeable rebound in that part of the business (see ).

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